will the ECB lower its interest rates, as estimated by the governor of the Bank of France?

In the “JDD”, François Villeroy de Galhau forecasts a drop in interest rates next June. It is based on the slowdown in inflation, but the economic situation remains unstable.

Is François Villeroy de Galhau, the governor of the Bank of France, moving a little too quickly? The economic situation must be taken into account. But it is true that for months, key rates have been high, exceeding 4%. We are therefore expecting a sort of return to normal, not a return to very low rates, as we have experienced in the past, but rates a little more in line with the level of inflation. It is for this reason that François Villeroy de Galhau is coming forward and anticipating a first reduction next June from the European Central Bank (ECB), the justice of the peace in this matter. “The interest rate instrument has been an effective weapon against inflation,” he explains to JDD Saturday April 13. By making money more expensive, the ECB has limited business investment, slowed real estate purchases and partly halted the spiral of inflation.

The governor of the Banque de France believes that “We are winning the battle against inflation. What is undeniable is that, according to INSEE, the consumer price index is in a clear slowdown. In France, it increased by +2.3% over one year in March, compared to +3% the previous month, in February. And not so long ago, inflation was over 4-5%. In this context, it is therefore logical for the ECB to lower its rates. And this reduction should, according to the governor of the Bank of France, take place gradually between now and the end of the year. Which in concrete terms will mean cheaper credit rates, particularly for real estate.

The consequences of tensions in the Middle East

But the economic situation is unstable and that is the problem. It is very linked to the geopolitical context, and Iran’s attack against Israel on Saturday April 13 could well reshuffle the cards. Because tensions in the Middle East risk very quickly causing a new outbreak on the oil and gas markets. Prices were already on an upward trend, but with these latest events, a barrel of oil could quickly trade on the markets above 100 dollars. Which, incidentally, promises to further increase the price at the pump. And energy prices are a very important component of inflation. So, if inflation picks up again, it is not at all certain that interest rates will fall.